How to Clear Old Debt

Clearing old debt could end harassing phone calls from debt collectors and improve your credit. A debt several years old may be preventing you from being approved for a mortgage loan. Or banks and credit unions may be offering you only high interest rates on a loan for a new car. Old debts never legally expire and can be listed on your credit report for seven years, according to the Federal Trade Commission.

Instructions

1

Get a copy of your credit report. Visit the website Annual Credit Report to view and print a copy for free (see Resources). The Federal Trade Commission reports that you're entitled to three free reports every 12 months under the terms of the Fair Credit Reporting Act.

2

Review your report to find old debts. Your debts may still be held by the original creditors or may have been sold or assigned to debt collectors. The current contact information will be listed on your credit report.

3

Call the individual creditors or debt collectors and make arrangements to pay the debts in full -- either in a lump sum or through installments.

4

Offer to settle the debts for less than the full amount if you can't afford to pay the entire bill. The SmartMoney website reports that debt collectors will often agree to settle old debts for 20 to 75 percent of the balance. Make 20 percent your initial offer as you negotiate a payoff. Get an agreement in writing before making payment.

5

Apply for bankruptcy if your debts are severe and you cannot pay them off in full or negotiate settlements. Chapter 7 bankruptcy allows you to eliminate unsecured debt, such as credit cards, in as little as a few months. Chapter 7 bankruptcy can be difficult to qualify for because of income limits that vary by the state. Another option is Chapter 13, which requires a payment plan of three to five years, during which time you will be held to a strict budget by the bankruptcy court.